Vizio had anemic growth in SmartCast active accounts and engagement in Q1. But ARPU leaped ahead despite a pullback in the ad market. Worryingly, the proportion of shipped TVs that became active SmartCast users reached an all-time low.
SmartCast engagement is flat over Q4 2022
There was only minuscule growth in SmartCast active users in Q1, from 17.4 million in Q4 2022 to 17.5 million in Q1 2023. 
Viewing time per active user also remained about the same as in Q4 2022. Active users spent 182 minutes daily using SmartCast in Q1, down a minute from the previous quarter but up 7 minutes from Q1 2022.
The company is taking measures to boost engagement. It will roll out an update to its home screen that it hopes will streamline user content access and allow brands to offer a more immersive experience. It has also boosted the number of channels in WatchFree+, adding 12 in the last quarter. Vizio leverages the hero bar in the home screen to heavily promote content available in WatchFree+.
ARPU delivers an impressive increase
The first quarter saw Roku complain that the pullback in the advertising market resulted in an ARPU decrease of $1 from the previous quarter and a 5% year-over-year decline. Vizio saw no such decline. It gained almost $1 in the quarter and is up an 
impressive 23% year-over-year delivering an annual ARPU in Q1 of $29.20.
Growth in ARPU can come from three places:
- Increased time spent with SmartCast and WatchFree+ resulting in more ads seen
- Higher ad values and fill rates[i]
- More ads in the SmartCast interface and higher ad loads in WatchFree+ content.
The biggest contributor to ARPU gains is likely higher ad values and fill rates. Time spent with SmartCast didn’t change much in the quarter, and the company didn’t say it increased ad loads. So, at a time when the ad market is giving lemons, Vizio is making lemonade.
Not surprisingly, Vizio’s Chief Financial Officer Adam Townsend highlighted the ARPU growth in the Q1 2023 earnings call:
“We’re generating great economics once a TV goes into a home.”
Unfortunately, there were worrying signs in the quarter that just getting a Vizio TV into a home was insufficient. The company needs to do better in converting the purchaser into a revenue-generating SmartCast user.
Active user conversion slump could be a huge problem
Much more worrying is the slump in converting Vizio users into active users. Vizio has converted around 40% of TV shipments into active SmartCast users for the last couple of years. This conversion rate seems low in light of the claim by Vizio executives that only 7% of viewing on Vizio TVs comes from TV-connected devices. With connected TV penetration over 80% in the US, I expect between 55%-75% of shipped Vizio TVs to be SmartCast active.
Of course, shipments aren’t the same as sales. However, retailers are loath to keep much inventory, meaning they will only take about as many TVs from a brand as they expect to sell.
Whether a 40% SmartCast activation rate is bad or not, the 11% rate in the first quarter is terrible. It will become a disaster if not quickly reversed, as new SmartCast users are a key driver of Platform+ revenue growth. Perhaps the coming upgrade to the Vizio home screen will help encourage more TV purchasers to start using SmartCast.
[i] Fill rate is the ratio of ads sold to the number of ad slots available over a certain period. For example, a 60% rate means, on average, for every 100 ad slots available, 60 ads were sold and ran in them.
